If you put a house on short sale and it sales for $25,000.00 less do you pay taxes on that $25,000.00 ?

Question

if the house sales for $25,000.00 less then the price it's worth do i have to pay taxes on that?

Answer 1

There are two tax issues on a short sale or foreclosure. The sale or foreclosure itself AND the tax repucussions of any canceled debt.

First off, the short sale or foreclosure is treated exactly the same as any other sale for tax purposes. Whatever it pulls at auction or whatever the outstanding mortgage balance is if it does not sell is the sales price. Subtract your basis (cost plus improvements) from the sale price to get your gain or loss as the case may be. Gains may be taxable depending upon the circumstances. Losses are only deductible on investment property. It's entirely possible to have a short sale or foreclosure that attracts capital gains tax! Many people are shocked to discover this but if you cash out equity on a home you've owned for many years and then go into foreclosure or a short sale this is VERY possible, even likely.

Once the sale is over, any remaining debt is considered for possible Cancellation of Debt income. If your mortgage is a recourse mortgage and the lender forgives the remaining debt then that amount is taxable income to you.

You can avoid that COD income if you are insolvent at the time of the COD. You are insolvent if your liabilities exceed the fair market value of your assets on the date of the COD. You file Form 982 and a basic financial statement to claim exemption of that COD income. The calculations can be tricky so professional help is highly recommended.

Answer 2

No. The worth does not matter for tax purposes.

If you sell it for more than you paid for it, you may or may not have to pay tax on the difference, depending on the amount, how long you lived there, and various other factors.

If you do not (either with the proceeds of the sale or with your own money) pay whatever you owed on the mortgage and the bank, finance company, or other lender forgives the remaining part of the debt, you do have to pay tax on the forgiven debt.

Answer 3

you need to pay all taxes that are due... Taxes are your accountability.. no longer the banks... The financial business enterprise made an settlement with you to construct an escrow account which you will pay the taxes on the tip of the year..yet once you weren't paying in to the escrow account then you definitely did no longer pay in on your taxes and you owe the back taxes..

Answer 4

You basis is not what it's worth, but what you paid for it and improvements versus repairs. Also, if this is a home you lived in 2 of the last 5 years, there is no tax at all. But if this is investment home, you basis is key,,,, we need more info...

Answer 5

You didn't give us all the facts--how much did you pay, how much did it sell for (the capital gains question) and how much did you owe and can you pay all of it back (the cancellation of debt question).

The capital gain may be excludable. The cancellation of debt income may not be excludable (you have to be in bankruptcy or be able to show insolvency).

Answer 6

that type of income is taxable as normal income, not capital gains and there is no 250,000 exclusion - so you would add that 25000 to your taxable income and have to pay regular income tax at whatever tax bracket that puts you at - if you're in the 25% bracket at that point, that will increase your tax liability by $6250 - there is no free ride

Answer 7

Did you live in the house? If you lived there more than 2 years you dont have to pay taxes on it at all. You only pay taxes on profit.